Moody's Investors Service says that while the growth rate of core shadow banking activity in China (Aa3 stable) remains subdued, the pace of total social financing (TSF) picked up in the second half of 2015 on a surge in corporate bond issuance and sustained bank lending.

"The growth rate of core shadow banking activity remained below that of nominal GDP growth in Q4 for a third straight quarter, but overall leverage continues to rise as credit growth, measured by total social financing, is still growing faster than nominal GDP," says Michael Taylor, a Moody's Managing Director and Chief Credit Officer for Asia Pacific.

He notes that the slowdown in core shadow banking reflects the impact of regulations to curb financial risks, but that other forms of shadow banking are expanding more rapidly.

Moody's defines core shadow banking activities as entrusted loans, trust loans, and undiscounted bankers' acceptances.

Moody's analysis is contained in its latest Quarterly China Shadow Banking Monitor. The Monitor draws on publicly available data sources to provide an overview of trends and developments in this important component of the Chinese financial system.

"Issuance of wealth management products remains an important component of shadow banking activity, even after the recent removal of the deposit rate cap," says Stephen Schwartz, a Moody's Senior Vice President. He notes that demand for such products has been sustained by the persistence of a positive yield gap between wealth management products and deposits.

Another fast-growing component of shadow banking has been peer-to-peer (P2P) lending which grew more than four-fold in 2015, albeit from a low base. While P2P lending does not pose systemic risks given its still small size, it has attracted attention for its high default rates and because it carries the risk of social tensions given the large presence of retail investors.

These factors prompted the CBRC to release draft supervision rules for the P2P lending industry in December 2015.

Moody's quarterly monitor further highlights the rise in "investment receivables" at mid-sized banks, which it says underscores the interconnectedness between the formal and shadow bank systems. In an environment of increasing financial strains, possible explanations for the rise are efforts by banks to boost margins, and to work around capital constraints and lending restrictions, says Moody's.